Cash put to the test in quarantine day

Just a few weeks ago, everything was very different. Many of the things that seemed ordinary then are no longer so today. Due to the spreading of COVID-19, we have been forced to stay confined at home, without being able to go for a walk, hug friends or visit our relatives. This is an extraordinary and provisional situation. However, regardless of how long it lasts, we may wonder whether everything will go back to normal after this tough period. Unfortunately, our reality does not work as a video game: pressing the pause button does affect the game. In fact, the first changes are already starting to be observed. For example, companies are beginning to embrace teleworking, teachers are forced to design new ways to reach their students and citizens are learning other means to communicate with their loved ones. Today, on "The CEU IAM Blog", we want to focus our attention on another of those specific aspects that can be altered after the period of confinement: the use of cash.

In January, in this blog, we echoed the study carried out by the European Central Bank (ECB) into the use of cash in the European Union. Its analysis concluded that, along with countries such as Greece, Malta and Cyprus, Spain was one of the European nations that most opt for payments in cash. Will it continue to be so once the quarantine period is over? The use of cash is deeply rooted in Spain. Despite the downward trend in other countries, Spanish indicators have always remained considerably high in this respect. Nevertheless, the new context of confinement provides new figures that lead us to reflecting on whether this situation may change or not: Could it lead to the emergence of a new scenario where there will be a lower use of cash?

Is this a farewell to bills and coins?

At the beginning of March, several publications released WHO members’ declarations that claimed that exchanging money by hand could contribute to the spread of bacteria and viruses. Consequently, the recommendation was to avoid touching our faces after handling cash and prioritize contactless payments with cards. Everything indicated that the WHO pointed to the use of cash as a means of spreading COVID-19. However, in the middle of the same month, in an interview made via email by Market Watch, WHO spokeswoman Fadela Chaib said that this statements had been misrepresented. <<WHO did hot say banknotes would transmit COVID-19, nor have we issued any warnings or statements about this>>, Chaib clarified. <<We were asked if we thought banknotes could transmit COVID-19 and we said you should wash your hands after handling money, especially if handling or eating food>>, since doing so is <<good hygiene practice>>, she added.

We cannot be sure to what extent the message has been well understood. Nor can we point out that it is only the containment measures the reason why there have been some changes. But the truth is that figures now suggest a very different landscape in comparison with the previous one. According to a study carried out by N26, cash withdrawals at ATMs fell 68% in Spain last month. This data is similar to that collected in other countries of the European Union such as Italy (with a drop of 54%), France (56%) or Germany (54%). In fact, this mobile bank underlines that this last figure represents a strong change in the behavior of Germans, as card payments in this country are not as widespread as in Spain.

The closure of shops, pubs and restaurants has also been reflected in the data provided by this mobile bank study, specifically, in an 8% decrease in the number of Spanish card transactions in March. On the other hand, the number of transactions related to electronic commerce has increased by 10%, and the average cost per transaction has risen 17% in this country. This has also happened in the rest of the countries. In Italy, electronic commerce is now 8% higher than the average consumer spending and, in Germany, 6%. There is also an increase in the frequency of online transactions: 12% for Italians, 3% for Germans and 7% for French.

This change in consumer behavior, albeit due to exceptional reasons, shows that cash is not essential now. This may open a door for the countries where money is as deeply rooted as Spain to stop being so. This new approach may have a strong impact on the preference for cards use, as well as on the rise of electronic means of payment. For instance, Tipsa's decision is an example of the rapid adaptation of companies to these types of models. The express transport company has announced that it will prioritize the use of Bizum instant payment system in the refunds made by its distributors during the quarantine period. Only time will tell if we will continue to see proposals like this after this extraordinary time of confinement.

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